Trading Strategies For GameStop Stonk Before And After Q4 Earnings

GameStop Corporation GME is set to print its fourth-quarter financial results after the market close Tuesday.

The heavily beaten-down stock was trading over 6% higher heading into the event and is down more than 62% off the Aug. 8, 2022 high of $47.99.

When the video game retailer printed its third-quarter miss on Dec. 7, the stock rallied over 11% the following day but subsequently continued in its downtrend, which brought GameStop to a Jan. 6 52-week low of $15.41.

For that quarter, GameStop reported a loss of 31 cents per share, which missed the consensus estimate of a loss of 28 cents per share. The company reported revenues of $1.186 billion, missing the $1.35-billion estimate.

For the fourth quarter, analysts expect GameStop to report a loss of 13 cents per share on revenues of $2.18 billion. Read more here...

From a technical analysis standpoint, GameStop’s stock looks bullish over the longer-term, after breaking up from a descending channel on Monday. It should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat.

Options traders, particularly those who are holding close dated calls or puts, take on extra risk because the institutions writing the options increase premiums to account for implied volatility.

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The GameStop Chart: GameStop broke up from a falling channel pattern on Monday, which had been holding the stock in a downtrend since Feb. 16. On Tuesday, after bullish momentum came into the stock, GameStop formed a higher high to negate the downtrend.

• In order for GameStop to confirm a new uptrend, the stock will eventually need to retrace to form a higher low above $15.53. If that happens, it could provide a solid entry point for bullish traders who aren’t already in a position.
• GameStop gapped up above the eight-day exponential moving average (EMA) on Tuesday but rejected the 21-day EMA as resistance. If GameStop receives a bullish reaction to its earnings print, the stock will regain the 21-day and if GameStop can trade above that area for a period of time, the eight-day EMA will cross above the 21-day, which would give bullish traders more confidence going forward.
• If GameStop suffers a bearish reaction to its earnings print and falls under the $15 dollar mark, Tuesday’s price action will serve as a bull trap and the stock is likely to continue in its downtrend.
• GameStop has resistance above at $19.44 and $21.89 and support below at $15.41 and $10.16.

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